Global Fastener News

STOCK REPORT YE 2003: 2003 Slowest Year in Fastener Acquisitions

John Wolz

The total number of fastener company acquisitions in 2003 was the lowest in the past 10 years, Richard Hagan announced in releasing his seventh annual Top 10 Deals of the Year list.
“Last year was another very slow year for deal-making in the worldwide fastener industry, with no increase in deal activity compared to 2002,” Hagan reflected. Hagan is president of New York-based Pinnacle Capital Corporation, which specializes in handling fastener industry acquisitions.
“Financial buyers private equity firms were again quite active in the marketplace,” Hagan observed. “No single theme dominated the few deals which were completed last year, but the opportunity to realize significant cost reductions via post-acquisition consolidation was the prime motivation for several of the “industry buyers.” ”
Hagan noted that five of the year”s top deals involved private equity firms two were sellers, two were buyers and one, Heartland Industrial Partners LP, essentially transferred a fastener business from one operating company to another. MidMark Capital LLC, a New Jersey-based private equity firm, made its first investment in the fastener industry in January 2003 by purchasing TCR Corp. from TransTechnology Corp. “We expect MidMark Capital to make “bolt-on” acquisitions to TCR before the investment is exited,” Hagan forecast.
Main Street Resources LLC, a Connecticut-based private equity firm that purchased majority ownership of Pawtucket Fasteners LP in 2002, acquired West-Spec Partners in 2003. Hagan described West-Spec as a “near perfect” strategic fit with Pawtucket Fasteners. “We expect other bolt-on acquisitions by Vertex Fasteners Inc. – the new name for the merged Pawtucket Fasteners and West-Spec – in the future.”
“With the sale of Walters Hexagon Group Ltd., Bridgepoint Capital Ltd., a London-based management buyout firm, exited its fastener distribution investment after a five-year holding period,” Hagan noted. “Bridgepoint Capital presumably earned an attractive return on its Walters Hexagon investment, since the company was purchased for $17 million in 1998 and sold for $25.7 million in 2003 to Anixter International Inc.”
Consolidation Plays
“If there was one dominant theme apparent in most of the deals involving “industry buyers” last year, it was the drive to acquire companies with overlapping operations where post-acquisition consolidation opportunities were expected to yield significant cost eliminations and improved overall profitability for the combined entities,” Hagan found. Prime examples were Barnes Group Inc.”s purchase of Kar Products LLC, which was subsequently consolidated into Barnes Distribution; Satair A/G”s purchase of Lentern Aircraft Ltd., which was later consolidated into Satair Hardware Group Ltd.; and Pawtucket”s consolidation of West-Spec. “We believe these three “consolidation-driven” transactions were excellent strategic moves, and we expect to see a continuation of these “consolidation plays” in 2004,” Hagan predicted.

Hagan”s Top 10 Fastener Deals of 2003
(Arranged in chronological order)
1)In January 2003 MidMark Capital LLC purchased TCR Corp. for $10 million in cash from TransTechnology Corp. With this divestiture, TransTechnology completed its exit from the fastener business. Other fastener businesses previously sold by TransTechnology include: Tinnerman/Palnut, Breeze Industrial Products, Seeger-Orbis and Aerospace Rivet Manufacturers.
TCR, located in Minneapolis, manufactures a range of cold-headed & machined fasteners and assembly components for the automotive, industrial/commercial, hydraulic systems and recreation vehicle markets. TCR generates annual net sales of approximately $20 million, operates from a single 137,000 sq ft plant and employs 133 people.
MidMark Capital is a Morristown, NJ-based private equity firm that invests in middle-market manufacturing, value-added distribution and service companies. Detailed terms of this transaction were not disclosed.

2)In February an investor group led by George Wasmer acquired Parts Associates Inc. for an undisclosed purchase price. Parts Associates, a privately owned company founded in 1948, distributes MRO supplies – including fasteners – serving customers in the automotive, off-road equipment, construction, mining and general industrial markets. Cleveland-based Parts Associates operates branch warehouses in Atlanta and Dallas. Parts Associates employs 275 people and generated net sales of between $35 million and $40 million in 2002. Wasmer, who retired in 1996 after serving for 18 years as the president of Lake Erie Screw Corp., is now chairman. Terms of this transaction were not disclosed.

3) In February Barnes Group Inc. acquired Kar Products LLC and the operating assets of its Canadian subsidiary, A&H Bolt & Nut Co. Ltd. for a total purchase price of $78.5 million. The purchase price consisted of $60 million cash and $18.5 million of Barnes Group common stock, which was paid to an investment partnership affiliated with Glencoe Capital LLC.
Kar Products is an MRO distributor – including fasteners – to more than 40,000 customers in the U.S., Canada and Puerto Rico. Kar”s 2002 net sales were $122.1 million, and EBIT was $6.3 million.
Kar Products was merged with the Barnes Distribution operating division of Barnes Group. Significant cost savings and synergies were expected to be realized from the integration of Kar Products into Barnes Distribution, which itself is the combination of Bowman Distribution and Curtis Industries (acquired in May 2000).

4)In May TriMas Corp. purchased Metaldyne Fittings for $22.7 million cash. Metaldyne Fittings was a business unit of Metaldyne Corp., and both TriMas and Metaldyne are controlled by Heartland Industrial Partners LP, a Bloomfield, MI-based private equity firm. Metaldyne Fittings, located in Livonia, MI, manufactures specialty fittings and cold-headed parts – including tube nuts, lock nuts, spacers and hollow extrusions – for the automotive and industrial markets. In 2002 Metaldyne Fittings” net sales totaled $16.7 million.
Metaldyne Fittings became part of the newly formed Fastening Systems Group of TriMas, which also includes Lake Erie Products and Monogram Aerospace Fasteners.

5) In June Pawtucket Fasteners LP (now Vertex Fasteners Inc.) purchased West-Spec Partners for an undisclosed price. West-Spec, headquartered in Chatsworth, CA, is an importer and master distributor of stainless steel fasteners, with four U.S. warehouses.
Pawtucket Fasteners, which is comprised of Bell Fasteners, Stillwater Fasteners and Zelenda Metric, is headquartered in Pawtucket, RI, and owned by Main Street Resources LLC, a private equity firm located in Westport, CT. Bell Fasteners and West-Spec are the second- and third-largest stainless steel fastener master distributors in the U.S.
Following the transaction closing, West-Spec was merged with Pawtucket Fasteners, and the combined entity was renamed Vertex Fasteners Inc. Significant cost savings and synergies were expected from the integration of West Spec and Pawtucket Fasteners, including the elimination of two overlapping warehouses in Los Angeles and Chicago.

6) In September MRC Industrial Group Inc. purchased Michigan Rivet Corp. for $9.6 million cash. Michigan Rivet manufactures male threaded fasteners, rivets, hinge pins, nuts, nut assemblies, tubular products and other cold-headed special parts – all of which are sold primarily to the North American automotive industry.
Warren, MI-based Michigan Rivet operates two manufacturing plants with more than 225,000 sq ft of total floor space and employs approximately 160 people. In the fiscal year ended October 31, 2002, Michigan Rivet generated net sales of $32.1 million.
MRC Industrial Group is a newly formed corporation owned and managed by an investor group led by Steven Engelman, a former senior executive of SPS Technologies Inc.
7)In September Anixter International Inc. purchased Walters Hexagon Group Ltd. for a cash price of $41.6 million, plus up to an additional $5.8 million, based on future profitability. Walters Hexagon is a distributor of fasteners and related assembly components and a provider of inventory management services to OEMs in the UK and France. Walters Hexagon, headquartered in Worcester, England, generated net sales of �36.1 million (US$60 million) in 2002, employs 270 people and operates nine distribution facilities in the UK and one in France. Walters Hexagon was formed in 1990 with the merger of C. Walters & Sons Ltd. and Hexagon Fasteners Ltd. and for the previous five years was owned by Bridgepoint Capital Ltd. (a London-based management buyout firm) and management. Following the transaction closing, Walters Hexagon was merged with Anixter Pentacon, the recently acquired fastener distribution division of Anixter.

8)In December Precision Castparts Corp. purchased SPS Technologies Inc. for $892.8 million. The purchase price consisted of: (1) $294.2 million cash, (2) PCP shares valued at $425.1 million, (3) $164 million of assumed debt, and (4) $9.5 million of transaction costs. PCP and SPS signed a definitive merger agreement in August that gave SPS shareholders the option of receiving $43 cash per share or 1.36 shares of PCP common stock, equating to $43.06 per share, based on the average closing price of PCP shares over the prior 30 days. This purchase price equated to a 41% premium based on SPS”s average closing share price over the same 30-day period.
SPS manufactures metal fasteners, components and assemblies, along with cutting & forming tools, specialty alloys and magnetic materials. In 2002 SPS generated net sales of $830.3 million and EBIT (before one-time restructuring charges) of $43.0 million. PCC expects to achieve annual cost eliminations of $20 million to $25 million in the first 12 to 15 months following the transaction closing, with cost eliminations expected to ultimately reach $30 million to $35 million annually. PCC manufactures structural investment castings, airfoil casting, and a diverse range of forged metal components for the aerospace, industrial gas turbine, fluid management and general industrial markets. PCC recorded net sales of $2.1 billion in the fiscal year ended March 30, 2003.
9) In December Sundram Fasteners Ltd. purchased the precision forgings business of Dana Spicer Europe Ltd. (Dana Precision Forgings) for 1.5 million (US$2.5 million). Dana Precision Forgings, based in Cramlington, England, manufactures cold-forged bevel gears for the European automotive and industrial markets.
Chennai, India-based Sundram intends to utilize the acquired business, which was renamed Cramlington Precision Forge Ltd., as a base to cross sell its other products to European customers, including automakers Daimler Chrysler and Opel. Sundram”s strategy is to expand sales in target countries and markets by acquiring small, niche manufacturers that have complementary products and an attractive customer base. Sundram manufactures a broad range of cold-headed and hot-forged fasteners, along with cold-formed and extruded metal components, for the automotive and general industrial markets. Sundram, with annual net sales of approximately $109 million, is a business unit of TVS Group, which is the largest automotive component manufacturer in India. Detailed terms of this transaction were not disclosed.

10)In December Satair A/S purchased Lentern Aircraft Ltd. for a total price of �2.3 million (US$3.8 million), consisting of �1.7 million cash and �600,000 of Satair common stock. Lentern Aircraft, a privately owned company located in Hockley, England, is a distributor of fasteners and related assembly hardware and a provider of inventory management services to aerospace OEMs located primarily in the UK. The company experienced a significant decline in revenue following the events of September 11, 2001, and began generating operating losses shortly thereafter. In 2003 Lentern Aircraft was projected to generate net sales of �18 million with around 200 employees. Following the transaction closing, the operations of Lentern Aircraft were to be consolidated with the existing UK operations of Satair, and significant cost reductions were anticipated. Satair is a distributor of spare parts, fasteners and related assembly hardware, supplying aerospace OEMs and the aircraft maintenance and repair market. Satair is headquartered in Copenhagen, and its shares are traded on the Copenhagen Stock Exchange.
Editor”s Note: For additional information contact Richard P. Hagan, president, Pinnacle Capital Corporation, 74 Trinity Place, Suite 1205, New York, NY 10006. Tel: 212 267-8200 Fax 212 267-7811 Email: rphagan@pinnaclecapitalcorp.com\ �2004 FastenerNews.com